The recovery in the financial markets hit some turbulence in October, as investors wrestled with anxiety about increasing COVID cases, doubts about a second round of stimulus, and uncertainty over the election. However, a surge in gross domestic product (GDP) in the third quarter may signal that the economy is on the rebound. Through October 28, all major indexes had mostly recouped most of their losses from the COVID crash in March. However, all were down for the month of October. Below is each index’s return from October 1 through October 28: S&P 500: -2.73%1 DJIA: -4.54%2 NASDAQ: -1.46%3 Here are the year-to-date returns of the major indexes: S&P 500: 0.40%1 DJIA: -8.14%2 NASDAQ: 21.04%3 What spooked the markets in October? There are a few factors, but as is the case with most things in 2020, COVID may be the primary factor. COVID Cases Ramp Up The COVID numbers are surging in the United States, suggesting that the end of the pandemic may be nowhere in sight. On Wednesday, October 28, the seven-day average for new daily cases hit an all-time high of 71,832, an increase of more than 20% in only a week.4 Twenty-nine states hit record levels for daily new cases in October. Forty states had an increase of 10% just in the last week of October.5 Thirty-six states had increases of at least 5% in COVID-related hospitalizations in the final week of October.4 The surge in cases is leading to a new round of business closures and regulations. Illinois recently stopped indoor dining at bars and restaurants.6 Investors may be spooked by the prospect of a second round of closures and its impact on the economy. A new report from Yelp found that 60% of businesses that were shutdown for COVID will never reopen.7 Stimulus Outlook The uncertainty of a second stimulus may also be a drag on the markets. In fact, Gary Cohn, former president and CEO of Goldman Sachs and former White House National Economic Council Director, says it is a primary factor driving the markets’ poor performance in October.8 He added in a recent interview that, “no one thinks we’re going to have stimulus until after the election,” and that, “we know that the markets do not like unpredictability.” He said that there was “100% probability” that stimulus won’t happen until after November 3rd, and possibly not until after the inauguration.8 Fund Flows Some recent data on mutual fund flows may provide insight into how investors feel about the financial markets. Through October 21, equity funds (including mutual funds and ETFs) saw net outflows for 11 consecutive weeks. That means more money flowed out of these funds than flowed into them.9 On the other side, taxable fixed-income ETFs have seen four straight weeks of net inflows. That may mean that investors are leaving equities for fixed income securities, even with interest rates near zero.9 GDP Surges in 3rd Quarter On a positive note, GDP surged by 33.1% in the third quarter, beating analyst expectations of 32%. The third quarter number is the largest quarterly GDP gain on record, easily beating the previous high of 16.7% in the third quarter of 1950.10
Of course, the third quarter surge comes after a 31.4% decline in GDP in the second quarter. Even with the increase in the third quarter, the economy is still projected to contract by 3.5% in 2020.10 The markets and the economy have rebounded, but the future is still uncertain. This may be a good time to explore options that can protect your assets and lock-in your gains. Contact us today at Kincaid Financial Services. We can help you explore these options and implement the right strategy to protect your financial future. Let’s connect today and start the conversation. 1https://www.google.com/finance/quote/.INX:INDEXSP 2https://www.google.com/finance/quote/.DJI:INDEXDJX 3https://www.google.com/finance/quote/.IXIC:INDEXNASDAQ 4https://www.cnbc.com/2020/10/28/covid-cases-hospitalizations-continue-to-surge-as-us-reaches-critical-point-in-pandemic.html 5https://www.cnn.com/2020/10/28/health/us-coronavirus-wednesday/index.html 6https://www.cnbc.com/2020/10/28/5-things-to-know-before-the-stock-market-opens-october-28-2020.html 7https://nypost.com/2020/09/17/majority-of-covid-19-business-closures-are-permanent-report/ 8https://finance.yahoo.com/news/stimulus-donald-trump-gary-cohn-markets-100-percent-probability-deal-wont-pass-before-the-election-214720697.html 9https://lipperalpha.refinitiv.com/2020/10/u-s-weekly-fundflows-insight-report-etf-and-fund-investors-focus-on-fixed-income-during-the-fund-flows-week/ 10https://www.cnbc.com/2020/10/29/us-gdp-report-third-quarter-2020.html This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about investments and potential insurance products as deemed appropriate by a licensed fiduciary. This information has been provided by a Licensed Investment and Insurance Professional and does not necessarily represent the views of the presenting professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Registered Investment Advisor and Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. Advisory services offered through ChangePath, LLC, a Registered Investment Adviser with the SEC. ChangePath, LLC and Kincaid Financial Resources are unaffiliated entities. 20365 – 2020/8/20
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It took just under five months for it to happen. On August 17th, the S&P 500 closed at 3389.78—an all-time record. That record is also significant because it means the index officially recouped all losses from the downturn that happened in March.1 This year has been a rollercoaster ride for investors. The S&P 500 dropped 33.92% from February 19 to March 23 as the COVID-19 pandemic hit the United States. Since March 23, the index has increased 51.51%, triggering a new bull market.2 However, a sharp increase in the stock market doesn’t mean the U.S. economy is out of the woods. In fact, other metrics would indicate that the economy is still struggling. In the second quarter, gross domestic product contracted at an annual rate of 32.9%, the largest quarterly contraction on record. That contraction is more than three times the previous record—a 10% contraction in 1958.3 Also, not all sectors of the stock market have participated in the recovery. The increase over the last five months has been fueled by growth in the Information Technology (IT) and Consumer Discretionary sectors, each of which are up more than 23% year-to-date. However, other sectors, particularly Financials and Energy, are negative on the year. In fact, of the 11 S&P 500 Sectors, five are still negative on the year.4 The 4th Quarter is historically the best quarter for S&P 500 performance, with the index up an average of 3.51% from October through December over the past 30 years.5 However, 2020 is not like other years. There are factors and risks that could threaten the market’s recovery. Below are a couple things to watch as the year comes to a close: ElectionWe’re only a couple months away from the election, as if 2020 needed more uncertainty. Everyone has their own preferred candidate. However, some investment managers are saying the real risk isn’t one of the candidates winning, it’s an unclear outcome. Bridgewater Associates, which manages more than $140 billion, recently told clients the real risk is if there is “material concern over the legitimacy of the process.” Analysis of recent options transactions show that many investors are taking protective stances through January 2021, possibly an indication they are concerned about post-election volatility.6 However, UBS notes that post-election volatility is often short-lived. They point to the most recent example of an election with an unclear winner—the 2000 election between Al Gore and George W. Bush. During that time, the S&P 500 fell around 6% in the weeks after the election as litigation mounted. However, those losses were erased as soon as the election reached resolution.7 COVIDOf course, the other major risk to the economy and financial markets in the fourth quarter is developments related to COVID. The pandemic is now in its seventh month. As of mid-August, the death toll in the United States exceeded 168,000, with more than 5 million confirmed cases.8
The development of a vaccine in the fourth quarter could deliver a boost to the economy. The government has implemented Operation Warp Speed, an initiative to deliver 300 million vaccines by January. Moderna has a vaccine in phase 3 trials, but it is uncertain whether the company will be able to meet the government’s target date.8 Ready to protect your portfolio from fourth quarter uncertainty? Let’s talk about it. Contact us today at Kincaid Financial Resources - You can reach us here. We can analyze your needs and goals and implement a plan. Let’s connect soon and start the conversation. 1https://www.cnbc.com/2020/08/17/stock-market-futures-open-to-close-news.html 2https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_iyc9X5L9Eq6E9PwPt8m4mAM1:0 3https://www.npr.org/sections/coronavirus-live-updates/2020/07/30/896714437/3-months-of-hell-u-s-economys-worst-quarter-ever 4https://www.cnn.com/2020/08/17/investing/premarket-stocks-trading/index.html 5https://stockanalysis.com/average-monthly-stock-returns/ 6https://www.foxbusiness.com/markets/2020-election-wall-street-stock-market 7https://fortune.com/2020/08/18/trump-biden-stock-market-2020-election-contested-results-what-could-happen-investors/ 8https://www.washingtonpost.com/nation/2020/08/19/coronavirus-covid-live-updates-us/ This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about investments and potential insurance products as deemed appropriate by a licensed fiduciary. This information has been provided by a Licensed Investment and Insurance Professional and does not necessarily represent the views of the presenting professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Registered Investment Advisor and Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. Advisory services offered through ChangePath, LLC, a Registered Investment Adviser with the SEC. ChangePath, LLC and Kincaid Financial Resources are unaffiliated entities. 20365 – 2020/8/20 As the COVID-19 pandemic stretches into its seventh month, leaders in Washington are debating a second stimulus bill. On August 8, President Trump signed executive orders that extended the federal unemployment benefit, but reduced the amount from $600 per week to $400. The orders also suspended the payroll tax through the end of the year, and suspended interest on federal student loans.1 However, even as President Trump signed the orders, Republicans and Democrats continued to negotiate terms for a second stimulus package. Democrats support a $3 trillion package known as the HEROES Act, while Republicans have their own $1 trillion HEALS Act.1 It’s unclear whether the final bill will include direct stimulus payments to Americans. Both Republicans and Democrats have endorsed the idea. However, it’s difficult to predict at this point what stimulus payments may be included in the final legislation. Market UpdateDespite the uncertainty surrounding COVID, the election, and the overall economy, the financial markets continue to climb. After suffering deep losses earlier in the year, two of the three major market indexes are in positive territory. Through August 10, all index year-to-date returns are:
S&P 500: 3.53%2 DJIA: -2.57%3 NASDAQ: 22.24%4 While the markets have mostly recovered from their losses earlier in the year, volatility can strike at any time. That’s especially true should the COVID pandemic worsen or if the economy suffers continued damage. There also may be increasing uncertainty as the election approaches. If you're concerned about risk, let’s talk about it. There are a wide range of strategies and tools we can implement to minimize risk and help protect your financial future. Let’s connect today and discuss your needs, goals and concerns. At Kincaid Financial Resources - You can reach us here. , we welcome the opportunity to help you implement the right strategy for your objectives. 1https://www.forbes.com/sites/advisor/2020/08/10/does-trumps-executive-order-mean-theres-no-second-stimulus-check-coming/#170371841d71 2https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_N64yX_KZKca7tQawrZbwAg1:0 3https://www.google.com/search?q=INDEXDJX:.DJI&tbm=fin&stick=H4sIAAAAAAAAAONgecRozC3w8sc9YSmtSWtOXmNU4eIKzsgvd80rySypFBLjYoOyeKS4uDj0c_UNkgsry3kWsfJ6-rm4Rrh4RVjpuXh5AgAzsV5OSAAAAA#scso=_h64yX9HyDLOO9PwPrMKg2Ac1:0 4https://www.google.com/search?q=NASDAQ:NDAQ&tbm=fin&stick=H4sIAAAAAAAAAONgecRoyi3w8sc9YSmdSWtOXmNU4-IKzsgvd80rySypFJLgYoOy-KR4uLj0c_UNzKtyzQyKeRaxcvs5Brs4Blr5AQkAEbRSnEgAAAA#scso=_7a0yX-q3AcyxtQbPt7HICg1:0 This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about investments and potential insurance products as deemed appropriate by a licensed fiduciary. This information has been provided by a Licensed Investment and Insurance Professional and does not necessarily represent the views of the presenting professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Registered Investment Advisor and Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. Advisory services offered through ChangePath, LLC, a Registered Investment Adviser with the SEC. ChangePath, LLC and Kincaid Financial Resources are unaffiliated entities. 20363 – 2020/8/20 |
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